If you are unfamiliar with the idiosyncrasies of Canadian tax law you will probably be surprised to learn that in a dispute with Canada Revenue Agency (CRA) the initial onus of proof is on the taxpayer.
One of the most important criteria of a SR&ED claim is supporting documentation, i.e. tangible evidence. This is the case even though the legislation does not mandate such documentation and the case law gives considerable authority to oral evidence. We understand why the CRA requires some documentary evidence to support an SR&ED claim, however there sometimes is a divergence between what CRA and the Tax Court of Canada considers sufficient.
The first installment of our CrossDynamix blog discusses the topic of "project deconstruction" during a SR&ED audit. The CRA's Research and Technology Advisor ("RTA") often asserts that the project is claimed at too high a level and that it is necessary to drill down to lower-level and more detailed activities; assessing individual activities (or individual sentences) as though they needed to embody an entire SR&ED claim on their own. The suggested response to the RTA in these scenarios is that it is important that the SR&ED be viewed at the correct level and that there are plenty of established guidelines about the issue of breaking things down too finely.